August 2019

Ways To Structure A Business Sale

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If you plan to sell your business within a few years, there are a number of ways to do so. Here are a few scenarios you might consider before selling.

You can sell your entire business, its assets or an equity share. In any case, cash is king. A cash deal may involve the entire sale price upfront, an initial sum plus annual payments, or only annual payments. No matter how the sale is structured, only cash will change hands.

Seller financing via installment payments is riskiest because it depends on the new owner’s continuing success. Combining upfront and annual payments could include an earn-out agreement for after-sale payments, where the seller receives bonuses or consultant fees annually. Full payment in cash upfront eliminates many risks, but could increase your tax liability.

If you will gradually leave your business, you might give a new partner partial equity in return for payment now and at your agreement’s conclusion. This entails some risk — you haven’t fully divested yourself, and bringing on another person is always risky — but you could earn more over time. Work with an attorney to create an ironclad agreement.

Selling your business assets could be an option if you will dissolve the company. This typically is least risky, but price the assets fairly and act before you need to have a fire sale.

Valuing your business requires a bit of pre-sale work, which includes comparing your business to peer competitors and creating a succession plan (if applicable). The more work you complete up front, the better your sale prospects will be.

However it’s structured, a business sale generally has tax consequences that may include capital gains, gift, generation-skipping and estate taxes. You may want to consult a valuation expert, in addition to working with tax, legal and financial professionals, before you begin the process.


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